Report No. 199

South African Law Commission

Discussion Paper 65 on Unreasonable Stipulations in Contracts and the Rectification of Contracts (1996) amd Final Report (1998)

The object of project 47 of S.A. Law Commission was to consider whether the courts should be enabled to remedy contracts or contractual terms that are unjust or unconscionable and then to modify the application to particular situations before the courts of such contracts or terms so as to avoid the injustice which would otherwise ensue. The next question was whether the review power of the courts should extend to all types of contracts, to non-consumer transactions, to international agreements or to standard term contracts only.

This Discussion Paper 65, was published in 1996 in order to inform the public of the prima facie views of the Commission and participation of readers in the debate and eventual formulation of a legislation, if it is deemed necessary. The Working Committee however, in the Discussion Paper 65, proposed that courts should be empowered to rescind or amend a contract or any terms thereof or to make such other order as may in the opinion of the court be necessary to prevent the effect of the contract being unreasonably prejudicial or oppressive to any of the parties vide para (2.4.11) establishing an ombudsperson to ensure that pre-formulated standard contract terms are not unreasonable, unconscionable or oppressive.

The Commission gave the report in April 1998 after considering the view of the participants and the legal position in various countries. The Commission was of the view that there was a need to legislate against contractual unfairness, unreasonableness, unconscionability or oppressiveness in all contractual phases, namely at the stages when a contract comes into being, when it is executed or when its terms are enforced.

The Commission thus proposed a Bill on the control of unreasonableness unconscionableness or oppressiveness in contracts:-. To provide that a court may determine whether contractual orders of contracts are unreasonable, unconscionable or oppressive; to set down the powers of the High Court in regard with terms which are unreasonable, unconscionable or oppressive; to establish the office of ombudsperson; to set down the powers of the ombudsperson; to provide for appointment of officers and staff to the office of the Ombudsperson; and for matters connected therewith. The Commission also felt the need to provide some definition to the concepts of unreasonableness, unconscionability and oppressiveness by setting out guidelines in proposed legislation.

The final Report (1998) gives the summary of its recommendations in parts (xiii) to (xx) (para 1.1 to para 1.12).

Chapter 1 refers to the 'problem as defined in Discussion Paper 65.

Chapter 2 contains para 2.1 to 2.9.5 (pages 30 to 213) on the following:

(a) desirability of enacting legislation (para 2.3)

(b) should courts and/or tribunals be empowered to act against unfair or unconscionable contracts? (para 2.3)

(c) shortcomings in providing redress in courts (para 2.3.4)

(d) powers to be granted to courts (para 2.4) (comparative study)

(e) the fairness criterion (para 2.5)

(f) guidelines (para 2.6) (comparative study) 117(g) scope of proposed legislation (para 2.7) (comparative study)

(h) changed circumstances after the conclusion of contract (para 2.8)

(i) parole evidence rule (para 2.9)

Annexure A contains the South African Law Commission's Bill in the context of unreasonableness, unconscionableness or oppressiveness in contracts or terms.

The Bill (1998) contains 6 sections bearing the titles referred to below:

Section 1: Court may determine whether contractual terms are unreasonable, unconscionable or oppressive and issue appropriate orders.

Section 2: A Court may take guidelines into account for determining unreasonableness, unconscionableness or oppressiveness in contracts or terms.

It has clauses (a) to (z).

Section 3: Application of Act (i.e. to all contracts).

Section 4: Taking into account circumstances which existed at the time of conclusion of the contract and the effect of subsequent changes of circumstances.

Section 5: Admissible evidence to assist interpretation of a contract.

Section 6: Ombudsman

The section enumerates the powers of ombudsman, to receive complaint, require information, regulate, prepare draft cores, to give direction to parties to come up with undertakings and in failure of the parties, to apply to the High Court for directions.